What the Experts Forgot to Mention

Lauded by business gurus as a time-tested model of team-based management, XEL Communications swears by that now-trendy concept -- and still struggles with its complexities every hour of every day

In the mid-1980s, not long after Bill Sanko and his partners had engineered the buyout, they could see that their fledgling telecommunications-equipment company was struggling.

Granted, the numbers weren't so bad. XEL Communications Inc., as they had christened the new business, was selling a lot of custom circuit boards to GTE Corp., its former parent. It was making money. But Sanko, a longtime GTE executive who took the entrepreneurial plunge at age 44, knew he'd be foolish to depend too heavily on his ex-employer. He needed to sell more to the Baby Bells, and to big industrial customers that operated their own phone systems.

Talk about David and his slingshot. In most such forays, the 180-employee company would be up against the likes of Northern Telecom and AT&T. XEL's only hope was agility. Lightning turnaround of orders, quicker than any big company could manage. Speedy response to customer needs. All done with close attention to cost. The low bidder in a competitive situation didn't necessarily get the job, Sanko knew. The high bidder didn't have a prayer.

On the shop floor, for example, cycle time -- the period from start of production to finished goods -- was about eight weeks. That left customers disgruntled and tied up money in inventory. The company's chain of command, moreover, had scarcely changed since the GTE days. Line workers reported to supervisors, who reported to unit or departmental managers, who reported on up the ladder to Sanko and a crew of top executives. Every rung added time and expense. "If a hardware engineer needed some software help, he'd go to his manager," Sanko says. "The manager would say, 'Go write it up.' Then the hardware manager would take the software manager to lunch and talk about it."

Sanko fretted, talked with his partners, fretted some more. "We needed everybody in the building thinking and contributing about how we could better satisfy our customers, how we could improve quality, how we could reduce costs," says the chief executive. Soon XEL began the kind of top-to-bottom transformation that numerous U.S. companies have attempted in the past decade.

First came the vision statement, crafted by Sanko and colleagues with the help of a consultant. That turned out to include the pregnant clause "we will be an organization where each of us is a self-manager." Next, manufacturing vice-president John Puckett redesigned the plant for cellular production, with groups of workers building whole families of circuit boards. Finally, Sanko and Puckett decided to set up self-managing teams, then a hot new concept, and brought back their consultant to help them get started. By 1988 the teams had been established -- and the supervisory and support staff reduced by 30%.

Today, five years later, XEL has rebuilt itself around those teams so thoroughly that the Association for Manufacturing Excellence recently chose the company as one of four to be featured in a video on team-based management. Dozens of visitors, from companies such as Hewlett-Packard, have trooped through XEL's Aurora, Colo., factory.

What they see is striking. Snappily colored banners hang from the plant's high ceiling to mark each team's work area. Charts on the wall track attendance, on-time deliveries, and the other variables by which the teams gauge their performance. Diagrams indicate who on a team is responsible for tasks such as scheduling.

Every week, the schedulers meet with Puckett to review what needs to be built. The teams meet daily, nearly always without a boss, to plan their part in that agenda. Longer meetings, called as necessary, take up topics such as vacation planning or recurring production problems. Once a quarter each team makes a formal presentation to management on what it has and hasn't accomplished. Overheads, with fancy charts, are de rigueur.

And the numbers are right where Sanko had hoped they would be. Since the advent of teams, XEL's cost of assembly has dropped 25%. Inventory has been cut by half; quality levels have risen 30%. The company's all-important cycle time has plummeted from eight weeks to four days and is still falling. Sales have swelled to an estimated $25 million this year, up from $17 million in 1992.

A success story? Sure. But XEL is also something much more complex and interesting, which is to say a company that has learned lessons about teams not viewed in any video or taught in any text. The consultant did his job fine, years ago. But there is much that no consultant knows -- and that XEL, from its experience, now does.

If you're thinking about taking the plunge into teams, here's a compendium of conclusions that you, too, are likely to come to.

* * *

Tasks like adding new people get harder, not easier. Face it: though CEOs love to complain, bringing on new hourly employees just isn't that tough in traditional companies. A manager or human-resources professional chooses candidates. A supervisor tells them what to do and helps them get started. Add teams, however, and the process gets messy. "Staffing up is probably five times harder with self-directed work teams," sighs Julie Rich, XEL's human-resources vice-president and one of Sanko's original partners.

Part of the problem is hiring itself: If you want people to work together well, you'd better involve the team in choosing candidates. In slack periods, that's no problem. But when a company is growing, who has time? Then too, traditional companies need look only for the requisite technical expertise and work habits, while teams need skills like the ability to handle confrontations. "We ask applicants, 'If you had a problem with someone, how would you deal with it?" reports Ernie Gauna, an assembler with a process team called Catch the Wave. Some candidates handle such questions poorly. Others decide they don't really want to work for a company that poses them.

But getting people in the door is a picnic compared with bringing them up to speed.

It isn't that teams don't want new members. It's that they have more immediate things on their minds, like output -- for which they, not some supervisor, are held accountable. And since a production line is only as fast as its slowest member, they know output will suffer. "I feel sorry for new people," says Teri Mantooth, who operates the wave-solder machine. "Your first instinct is, Oh, no, we've got a new person and we're going to get throttled; we're not going to make our numbers."

The payoff, of course, is that once new people "bond" with the team, they're part of an intense social group. Turnover at XEL is low and loyalty strong, particularly among veterans such as Gauna and Mantooth. But getting there hasn't been half the fun. XEL tried staffing up with temporaries, hoping to avoid or at least postpone the difficulties of bonding. That backfired: the full-timers treated temps worse than they did regular newcomers and showed them the door at the first sign of a foul-up. The company also tried a training team designed especially for new hires. But trainees "freaked out" -- Mantooth's words -- when they graduated to a regular, faster team.

Julie Rich's most recent experiment, implemented only a few months ago: a formal buddy system, which pairs new hires with veterans. She's optimistic, but the final verdict isn't yet in.

* * *

Supervisors are sorely missed -- but not for the reasons you'd expect. Ultimately, a traditional supervisor's explicit tasks -- even hiring -- will be taken on by teams. Once that happens the frontline manager's input won't be missed. But supervisors have an implicit job as well, namely, keeping a lid on the messy underside of human relations.

Think about it. Everyday spats and skirmishes, the kind that arise in every group, don't fester long in conventional plants because a boss steps in to discipline or separate the warring parties. At XEL there's rarely a boss in sight, so disputes can snowball. "If one team is fighting, other teams will eat on it," says Mantooth. "You know, like, Guess what so-and-so said?"

XEL has evolved an informal way of dealing with such problems: get them off the floor and get them resolved, face-to-face. A team's scheduler (who often acts as a de facto leader) or a seasoned worker will jump in, ask the disputants into the conference room, and try to mediate. Not that it's easy. Mantooth, for example, gripes that two women on her team have been harboring grudges toward each other for weeks now, and nothing she does seems to help. And when disputes rumble on, production suffers.

Because of that vulnerability, every team member at XEL seems acutely aware of the importance of individual personalities, of people's ability to work smoothly as a team. If traditional management is like football -- everyone in a position, doing exactly what the playbook specifies -- team-based management is like basketball. One or two uncooperative teammates can screw up the whole group.

Team building doesn't go neatly from one stage to the next. To Puckett, that was the most surprising realization.

"The books all say you start in this state of chaos and march through these various stages, and you end up in this state of ultimate self-direction, where everything is going just great." The manufacturing VP smiles, a little wanly. "They never tell you it can go back in the other direction, sometimes as quickly."

At XEL the fastest backslider in recent memory was the stockroom team. To all appearances, it was working well enough. Then cracks began appearing in its facade.

One day, for example, a team facilitator named Scott Tirone was working in a nearby area when he heard a dispute break out in the stockroom. An employee had come in 20 minutes late, unexcused, and was arguing vehemently with the team's attendance taker that she shouldn't be given an "occurrence" on the board, as company policy required. "She had a pen in her hand and was actually going to go change it," Tirone remembers. He intervened.

Puckett then began hearing complaints about the stockroom. Arguments were frequent. The stockroom's "customers" -- the other teams -- felt they weren't being well served. Soon he discovered something worse: a few people in the group were cheating on their time cards and covering up for one another.

The result: team-based management in the stockroom came to an abrupt halt. Puckett fired the abusers. He installed Tirone as stockroom supervisor, with full disciplinary authority. "My main purpose in going over to the stockroom was to do some housecleaning," says Tirone.

But his purpose now, he adds, is to work himself out of a job by retraining people in how to collaborate as a team. His model? The Red Team, which a couple of years ago was mired in discontent almost as deep as the stockroom's and was given a facilitator to oversee its operation. That move annoyed the group -- which, however, decided that the way to get rid of its facilitator was to get its act together.

"I think we just stepped up and started doing more of what we were supposed to be doing, instead of having one person controlling what was going on," says Fred Arent, a Red Team member. Today the team is one of XEL's most productive.

* * *

Managers need skills no M.B.A. program -- or traditional company -- will ever teach them. One is assessing each team's "maturity," as everyone at XEL calls it, and establishing the boundaries of self-management accordingly. Teams doing well get less managerial oversight; teams doing poorly get more. "We may have to say, You guys don't have the authority to determine your own overtime, because you're misusing it, and here are the indicators," says Puckett.

But there are at least three other skills, all delicate, that Puckett has had to learn -- and that he's now teaching his two lieutenants, each of whom oversees the operation of several teams. Call them diplomacy, monkey managing, and innovation triage.

Diplomacy refers to the job of managing relations among teams. That can be as simple as encouraging one team to lend a few workers to another or as difficult as untangling an interteam dispute.

Untangling is ticklish because managers seldom have firsthand knowledge of what happened. Recently, for example, Teri Mantooth in the wave-solder room accused the Silver Team of trying to bypass the company's strict kanban production-control system. Silver appealed to Lieutenant number one and got an answer favoring wave solder, which Silver didn't like. So it then appealed to Puckett, who overruled his lieutenant. Wave solder retaliated by complaining to lieutenant number two, who -- Puckett notwithstanding -- took its side against Silver. The dispute wasn't resolved until all three managers, like United Nations negotiators, sat down with people from both teams.

One team can't find anybody to be its scheduler. Another team can't get enough volunteers to work nights. A manager's problem? Not at XEL. "You need to make them responsible for solving the problem," says Puckett. "Because as soon as you say, OK, I'll do something about that, they no longer have any responsibility at all." That, of course, turns the conventional managerial mind-set upside down: bosses usually figure their job is to take on other people's monkeys. But so long as a problem stays within a team -- and so long as the team has the resources it needs to solve it -- an XEL manager learns to stay away.

Innovation triage may be the trickiest of all, because it ties directly into a key strength -- and key weakness -- of team-based management.

The strength is just what CEO Sanko had sought when he instituted teams: a lot of people thinking actively about matters such as quality and cost. The Red Team's Arent, for example, noticed that one model of board didn't need certain pieces called for in the engineering diagram. Rather than hollering for Puckett, he went directly to the engineer involved and got the specification changed.

And the weakness? Not to put too fine a point on it, but teams may assume they know more than they do. One team, says Puckett, identified a parts problem on a particular board and worked with engineering to get the part replaced. So far so good. Then the team noticed a similar problem on another board and made the same change without consulting anybody. Soon those boards were coming back to the factory: they had failed in the field.

A manager's job: encourage and reward good ideas and innovations -- but make sure teams don't take too much into their own hands.

Employees, too, need skills they never had before. Some of those new skills are obvious. You can't chart defect trend levels unless you know some basic math and statistical process control. You can't take an active part in meetings unless you speak conversational English.

Recognizing an acute need for training in such subjects, XEL set up in-house classes taught by its own employees, and designed an extensive adult-education program in conjunction with nearby Community College of Aurora. Some 60 of the 80 employees then in the shop took at least one class, in subjects ranging from English and math to stress management and cost accounting. The program attracted national attention. "America's best hope for maintaining its status as an economic powerhouse may reside in quiet efforts like those under way at XEL," the Denver Post editorialized.

The other skill employees need is less obvious but no less important. Call it assertiveness or ambition or simply an expansive attitude toward work life. Whatever the name, it's the opposite of the conventional employee's mentality. Traditional workers specialize; XEL's must learn a variety of skills and be willing to perform many tasks. Traditional workers do as they're told; XEL's have to set their own priorities.

Some employees, says Puckett, just want to hole up in a corner and do one task quietly. "The interesting thing is, that's no longer a possibility. You can't give people that option anymore in this kind of environment."

* * *

The standard systems for managing people go out the window. Compensation and performance reviews, in particular, have challenged XEL's creativity.

Most companies have plenty of leeway in how they treat pay issues. Not companies with teams. "I don't think you can have effective team-based management with a traditional compensation system focused on individual performance," says Puckett. Workers can't be looking to shine on their own, he adds -- they have to be thinking of the good of the team. And the compensation system must encourage them to do so.

XEL's system is still evolving, but right now it walks on three legs.

Leg one: skill-based pay, an hourly wage determined by the number of skills a worker has mastered. Take a course in advanced soldering, say, and do some on-the-job training -- then demonstrate to your team that you're now an accomplished advanced solderer. That will ratchet your hourly wage up a dollar. The logic: successful teams require members who can perform a variety of tasks.

Leg two: merit increases, based on a combination of team performance and peer reviews. What better measure of effectiveness than your team's numbers? And who can judge your contribution better than the other members?

Leg three: profit sharing, paid in cash every quarter, varying with the company's performance and each worker's quarterly earnings. Teams can be successful only as the company is successful.

The system has its detractors. Ernie Gauna, for one, argues that merit increases aren't fair, because they depend too much on which team an employee is assigned to, and the employee has no control over that. And profit sharing (like all profit sharing) is disillusioning when the company has a weak quarter. The answer? Human-resources vice-president Rich isn't sure; she wants to experiment with a gain-sharing plan.

The performance-review system has evolved over time as well. "We didn't figure this one out until it was time to do reviews," says Puckett. "Julie walked out and put a stack of them on my desk -- and I had no supervisors to give them to." Puckett himself couldn't do them, because he wasn't close enough to individual workers. The reviews had to be done by team members themselves.

At first the company asked for narratives on each person, much like those they'd get from a supervisor. No go -- workers had neither the time nor the skills to provide so much information. But an employee task force designed a check-a-box style of review, in which people rate one another on matters such as efficiency, meeting team goals, and punctuality.

A leader doesn't need to be a supervisor. Every team needs some kind of leader -- someone to run meetings, to make sure everyone's on track, to act as a liaison with management. Trouble is, employees who are appointed leaders may suddenly turn into straw bosses, issuing orders and solving problems. XEL has grappled hard with that issue and now uses three designations:

Supervisors have the same authority as at any company: to tell workers what to do and to discipline them as required. XEL assigns a supervisor to a team only when the team has somehow violated a trust or failed in its most basic endeavors. The supervisors' fundamental task is to work themselves out of a job.

Facilitators are responsible for ensuring a team's smooth functioning and have low-level disciplinary authority. Teams may get a facilitator -- who earns more than production workers -- if they're having trouble making their numbers. Having a facilitator has helped XEL's Blue Team, says team member Richard Zwetzig: "When there's a problem like a parts shortage, you've got somebody that can attend to it right there, and the rest of the team members can keep going. They don't have to come to a screeching halt."

Schedulers are no more than first among equals, responsible for running meetings and attending weekly production meetings. Unlike supervisors, they're expected to work regular jobs on the production line, and until recently they got no extra pay. (Now scheduling is considered a skill in XEL's skill-based-pay program.) Most teams at XEL have no facilitator, only a scheduler, which makes them truly self-managing.

And who picks the various leaders? XEL's managers choose supervisors and facilitators when needed; teams choose their own schedulers. Since scheduling is a difficult task, the teams often have trouble finding volunteers.

* * *

Teams alter everyone's knowledge about what's going on. That's felt most keenly at the top. Think back to the vision statement crafted by Sanko and the others: "We will be an organization where each of us is a self-manager." The teams help turn that brave declaration into reality.

Eventually, the new reality seeps into the farthest reaches of people's consciousness. "People learn more and more that they can rely on themselves," says Zwetzig of the Blue Team. "Some of the new hires, it blows their minds when they come in. Most people are used to these structured deals, where you do your little piece and you send it on, and you don't care what happens to it after that. Here you're involved in the whole picture. You have the mind-set: OK, this is the flow -- and this is what we have to do to accomplish that."

As Fred Arent of the Red Team puts it, XEL's employees learn to "make some decisions that normal people can't make." To watch Arent's team at work is to see how far that learning has progressed. In the course of one hour-long meeting, the group conducts delicate vacation negotiations, discusses deployment for the rest of the week, clarifies who's responsible for each part of tomorrow's quarterly presentation to management, and explores possible reasons for a high rework number.

People who assume so much responsibility in one area can't be treated like conventional employees in another. To its credit, XEL realized that from the beginning -- and has bent over backward to involve employees in the company in a variety of other ways. Task forces, staffed by volunteers, are convened to design innovations such as the training program. "Climate surveys," conducted by an independent third party, help uncover potential sources of dissatisfaction. Regular quarterly meetings, with full financials, allow Sanko to walk everyone through the company's business performance.

Even now, after so many years, you sense that Sanko and Puckett, at least, are still getting used to this culture of responsibility -- and to the fact that they, as managers, must give up a measure of control.

"Bill asks me a lot of questions," muses Puckett, "and the answer is often, 'I don't know.' He expects me to know. And in a traditional environment I should know. But I don't. And I have the same problem. I ask a question, and it's, 'I don't know.' That's something you have to learn to accept: your people that are in leadership roles don't have all the answers, because a lot is delegated well down into the organization."

Sanko feels the same lack of knowledge and the doubt that accompanies it. He sees a car leaving the factory at 2:30, an hour before the shift ends, and wonders who it is. He sees an employee talking on the telephone -- each team has its own phone -- or several employees chatting in the company cafeteria. He wonders what they're talking about. Or he sees a big overtime expense. "As an old manager, you're saying to yourself, Who approved this? Then you realize nobody approved it in advance. It was approved after it was done.

"You want to ask if all that expense was really necessary. But then you have to bite your tongue and say, Well, let's look at it at the end of the month. Were the deliveries made on time? What were the margins? As a manager, you have to move away from what's being done at this instant."

Adds Puckett, firmly: "That was one of my difficult transitions. I always had a 'book' I could manage by, where I knew everything about everything. I don't have that anymore.

"Giving up that control -- that's one of the most difficult things people from a traditional management environment have to do."

TEAMS: A SCORECARD

Quality teams. Problem-solving teams. Cross-functional teams. The management consultant's garden has sprouted a lot of varieties these days. And if that weren't enough, plenty of otherwise-traditional managers have taken to calling their departments "my team," as if a new label could somehow make employees think and work differently.

So what's a team? Experts such as McKinsey & Co.'s Jon R. Katzenbach and Douglas K. Smith offer a practical definition in their book The Wisdom of Teams (Harvard Business School Press, 1993): "A team is a small number of people with complementary skills who are committed to a common purpose, set of performance goals, and approach for which they hold themselves mutually accountable." Note that key phrase hold themselvesaccountable. In other words, teams by definition work on their own, without a boss's direct supervision.

Among the variations on the team theme, none is hotter than the self-directed work team, like those at XEL Communications Inc. -- groups of line employees who manage their own jobs, no supervisor involved. General Electric Co. runs several plants without supervisors. AT&T introduced teams at an aging Clark, N.J., factory and saw its costs drop 30%. Quattro Corp., a two-year-old electronics manufacturer in Albuquerque, has relied on self-managing teams since its inception. "Teams have allowed us to do without a whole layer of management," says technical manager Gerald Underwood.

Make no mistake: self-directed work teams are not pleas-ant little assemblages like quality circles, experiments that can be tried today and discarded tomorrow if they don't work out. Setting them up means teaching groups of workers to take responsibility for managing themselves, and then giving them the power they need to do so. It means abolishing the position of supervisor, and in all likelihood losing some of the people who held that job.

As XEL has discovered, the problems are big. What makes teams worthwhile is that the payoffs are bigger.

LIFE WITHOUT BOSSES

Mention the idea of self-managing teams and skeptics raise an eyebrow. No supervisors? What keeps workers from taking off -- or slacking off -- whenever they feel like it? When XEL Communications Inc. introduced teams, says manufacturing vice-president John Puckett, "you'd go out there on a Friday afternoon, and half a team would be gone."

But wait. When a group's work is being tracked by measures like on-time deliveries -- and when the measures not only affect performance reviews but are up on the wall for all to see -- how long does it take to tighten up? For most, not long. "Everybody has [team] goals on their mind here," says Steve Williams, a nine-year veteran of Honeywell Inc. who now works on XEL's Silver Team. "At Honeywell, we weren't thinking like that."

That's the strength of teams: people work to meet their team's goals, not just to please some boss. The result: they work both harder and smarter.